Here's the state of Florida's star-crossed property insurance market after several years without any major hurricanes: Three Florida property insurers went insolvent this past year. Forty-four of the state's top 73 property insurers are losing money. Major players like State Farm are dropping tens of thousands of policies statewide. Regulators have approved double-digit rate hikes. Citizens Property Insurance, once the state-run insurer of last resort, is turning into the first resort for some property owners worried about the financial stability of smaller, Florida-based private companies. • Meanwhile, elusive as ever is finding a long-term solution to covering the risk of a state that has more coastal exposure to hurricane damage than any other in the country.
Just imagine if Florida has a major hurricane to truly get insurers riled up and moving out.
"I believe the Florida property market is in a perilous position," said Bill Gunter, chairman of the Florida Association of Insurance Agents. "Now is the time that Florida insurers should be building reserves for future claims and (most insurers) are losing money. … Our agents are increasingly concerned about how to advise their clients."
Tackling property insurance has been a perennial task of Florida legislators with mixed and often conflicting results.
At one point, Florida legislators pushed to make Citizens Property charge the highest rates in the market to push down its policy count. Then, the state-run company's mission changed to become more competitive with the marketplace and its rates were frozen for three years. Last year, the Legislature approved a plan to let Citizens gradually raise rates 10 percent a year on a "glide path" to eventually becoming more "actuarially sound."
Last year was highlighted by State Farm's pronouncement that it was pulling out of Florida, only to change its mind at year-end after striking a deal with the state to raise rates an average of 15 percent and drop 125,000 of its higher-risk policies.
High on the agenda of legislative leaders this year is making moves to keep insurers happy and staying in Florida. Translation: letting them charge higher premiums and trying to strengthen the state's hurricane catastrophe fund.
The pathway to higher rates could take several forms, from reducing coverage to restricting the discounts given to homeowners who take steps to shore up their homes to giving insurers greater leeway to pass on the costs of higher reinsurance (added layers of insurance that insurers buy in case of catastrophic losses).
Sam Miller, executive vice president of the Florida Insurance Council, said the state's property insurance system would need a major overhaul to raise rates to a sustainable level. But he doesn't see that happening in Tallahassee imminently.
"We recognize you can only do so much politically, but we need to do as much as we can," he said.
Among the issues that the House and Senate are expected to tackle:
A program to offer discounts to property owners who shore up their homes has sparked controversy. Supporters say it encourages homeowners to mitigate their houses from storm damage and properly rewards them, Detractors say it is difficult to monitor, open to fraud and costly.
Many insurers seeking rate increases have cited the rising cost of giving mitigation credits as depleting their premiums.
"It's more than a premium issue; it's a safety issue," said Don Cronin, CEO of United Insurance in St. Petersburg. "If people really believe their homes are protected to a Cat 3 storm and they're not, it could affect their decision whether to evacuate."
Rep. Bill Proctor, R-St. Augustine, and Sen. Mike Bennett, R-Bradenton, are renewing their call to deregulate the insurance industry. The measure was vetoed by Gov. Charlie Crist last year and some insurance industry lobbyists have expressed doubts it will pass in its pure form.
Consumer advocates have opposed deregulation — eliminating the role of regulators in approving rates — saying it would trigger a big spike in rates.
Bill Newton, executive director of the Florida Consumer Action Network, thinks the more likely scenario is insurers gravitating toward a plan that lets them raise rates 10 percent a year without regulatory intervention.
But he holds hope that even that option could be politically untenable in an election year. "Letting rates rise certainly doesn't sound very consumer-friendly when we already have the highest rates and the market in property insurance is very soft" after several hurricane-free years.
To bolster his contention that insurers are overstating the threat, Newton pointed to flawed, short-term computer models. A recent report from risk management firm Karen Clark & Co. indicated the active hurricane seasons of 2004 and 2005 were incorrectly used by insurers as a harbinger of a continuing trend through the decade.
Near-term hurricane models used by insurers had predicted storm damage ranging from $48.8 billion to $54.6 billion between 2006 and 2009. Instead, storms caused about $13.3 billion in damage over that time frame.
Florida regulators do not allow short-term models in setting rates.
Insurers say the increase in public adjusters (who represent the interests of property owners in settling claims) has come in tandem with the reopening of numerous claims from earlier hurricanes.
Claims can be reopened up to five years after a hurricane which, the Florida Insurance Council maintains, is the reason why 2005's Hurricane Wilma has risen to become the state's third most expensive hurricane on record. The council wants to limit how public adjusters solicit business and change the five-year statute of limitation for filing a claim to as little as two years.
Replacement costs vs. actual cash value.
Look for legislation that would no longer require replacement cost value for a roof more than 20 years old. Insurers also may get clearance to pay actual cash value at the time of loss and then the full replacement cost after receiving an executed contract for damage repair.
Not since 2003 has there been such a concerted effort by the insurance industry for a fraud bill.
Insurance fraud issues involving hurricane mitigation discounts and sinkhole claims could be part of a broader bill focused largely on auto insurance fraud.
In seeking higher auto rates, insurers are blaming a surge in staged accidents and questionable claims in Florida. They are pushing for a bill which, among other elements, would allow the forfeiture of property used in a felony. "Property" would include not just cars but also clinics used for insurance fraud.
Senate leaders are working on a draft bill that also includes some consumer-oriented provisions. One provision would allow the Insurance Consumer Advocate to intervene as a party in administrative state hearings and other insurance department proceedings; another would require the Office of Insurance Regulation to refine or re-create entirely its "Shop and Compare" Web site to give consumers information about price comparisons, complaints and financial strength of insurers.
Legislators are also eyeing expanded powers for the Office of Insurance Regulation. With rising concern over the solvency of smaller insurers, OIR may be authorized to require cancellation of some or all of a financially troubled insurer's policies within 45 days notice.
Times/Herald staff writer John Frank contributed to this report. Jeff Harrington can be reached at [email protected] or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.